Question

Which of the following situations is one in which the Fed will potentially pursue expansionary monetary policy?

A) Potential GDP is forecasted to be higher than equilibrium GDP.

B) Aggregate demand is growing too slowly and the economy is in danger of producing GDP above full employment.

C) Aggregate demand is growing too fast to keep the economy at full employment.

D) Potential GDP is forecasted to be lower than equilibrium GDP.

Answer 1

Answer:C) Aggregate demand is growing too fast to keep the economy at full employment.

Step-by-step explanation:

Expansionary monetary policy is typically pursued by the central bank (such as the Fed) when the goal is to stimulate economic growth and increase aggregate demand. This is done by implementing measures to lower interest rates, increase the money supply, and encourage borrowing and spending. In the given options, when aggregate demand is growing too fast and there is a risk of the economy exceeding full employment, the Fed may pursue an expansionary monetary policy to moderate the growth and maintain stability.